India?s blue-chip companies have begun to align their accounting standards to the International Financial Reporting Standards (IFRS), three years ahead of the mandatory time for the switchover. The list of companies includes IT firms like Wipro, Infosys Technologies and NIIT, automakers like Mahindra & Mahindra and Tata Motors, textile companies like Bombay Dyeing and pharma firm Dr Reddy?s Laboratories.
The companies are moving on despite being compliant with the US GAAP standards, the current global accounting norms. This is because the IFRS has become mandatory for listing in the European markets after 2007. The other reason is that the new norms provide for stiffer provisioning for mark-to-market losses, also known as AS-30 standards.
For companies with exposure in European markets through equity or debt, such transparency is essential to raise capital cheap and hence, the proactive approach. The Indian accounting standards body, the Institute of Chartered Accountants of India (ICAI), has set a time line of 2011 for compulsory switchover to the new standard. IFRS is the accounting benchmark developed by the International Accounting Standards Board.
Suresh Senapaty, CFO and executive director, Wipro Ltd, said, ?We welcome the initiative of ICAI in driving convergence with international financial reporting standards by 2011. We have adopted AS-30 from April this year, much ahead of its scheduled implementation. We are also actively considering early adoption of AS-31, which is the next standard.?
Ved Jain, president, ICAI, said, ?Many companies have already started following the new accounting standards because these ensure transparency and uniformity. The implementation would strengthen the confidence of stakeholders in the companies? financial statements, which, in turn, will bring value to the corporates.?
The ICAI?s accounting standard ?30 mandates companies to provide for mark-to-market losses as well as profits from April 2009 on a voluntary basis. All complexities regarding derivatives have been addressed in AS-30, which is in line with the IFRS norms.
If an entity does not opt for either AS-30 or AS-1, the auditors will need to make a suitable disclosure. Analysts note that the total mark-to-market losses of Indian companies from forex derivative exposures could be about $5 billion.
The company auditors would need to disclose the figures separately if the company balance sheet does not bring them out. Companies with international presence are not willing to take this risk. Says Rajendra S Pawar, chairman, NIIT Technologies: ?AS-30 was started from January 2008, and by 2012, it is expected that we would start following AS-31 as well as AS-32 as they both happen to be a continuation of AS-30, which we have already started off with.?
A large number of Indian firms are currently battling how to write in huge losses on their exposure to forex derivatives, when their currency bets went wrong.